Opinion: Can wind propulsion weather the approaching perfect storm?

This article is written by Gavin Allwright, Secretary General – International Windship Association

When taking time to reflect on the past year, I would argue that 2023 was the year in which our industry took the gloves off and got down to business when it came to decarbonization.

At COP28 in December it was clear that following the regulatory upgrade to GHG reduction targets earlier in the year shipping now had a ‘tackling the climate change challenge’ story that it could actually tell and sell. Our industry now has the opportunity to move from an almost ‘pariah’ status to a ‘pioneer’ position, if we want to, and that was refreshing to see at this global gathering. However, the devil is in the delivery.

Eight months have now passed since the International Maritime Organization (IMO) and its Member States raised the GHG reduction ambition for the shipping industry in the IMO GHG Strategy during the 80^th Marine Environment Protection Committee (MEPC80) held in July last year. Since then, the industry has been fervently searching for the best ways to deliver on the 30% Co2 reduction by 2030 target (30% by 2030 being the only realistic level of reduction that would keep the industry within reach of IMO’s 2040/2050 GHG targets and stay within reach of the Paris agreement.) on a well-to-wake basis without offsetting or shifting emissions elsewhere.

This change in perception and approach, the realization that we must act now, has been clearly evident in all of the discussions and deliberations that I have been privy to, i.e. there’s a great deal of optimism tempered with a fair dose of realism that we need to use all of the tools in the toolbox.

From my perspective, and as an advocate of wind power and wind propulsion technology, it has been encouraging to hear in those same discussions and deliberations the perception that wind delivers across the board when it comes to swift, double-digit emission reduction action that doesn’t cost the earth.

The progress towards the adoption of wind as an energy source in the sector that we are seeing is significant. The numbers speak for themselves, we are approaching a doubling in the number of ships with wind propulsion systems installed in the past twelve months.

2023 started with twenty-three large vessels with wind propulsion systems installed, of which eight were installed in 2022 along with three wind-ready vessels (meaning that they have the ability to have wind propulsion systems at a later date). This represents approximately one million dwt of shipping cargo that could be moved by ships using the wind as energy added to the fleet in 2023.

Since then, that number has grown to thirty-three ships that have had wind propulsion systems installed with ten more wind-ready vessels taking the cargo capacity to well over two million dwt. There are also up to sixteen ships pending installation in the coming couple of months. Therefore, the number of ships using wind as an energy source is growing, particularly in the bulker segment at present.

However, the upward trends of adoption and the approaching inflection points that are becoming increasingly evident are what will be more impactful on future growth. Each shipping sector wants to see at least three points of reference for wind propulsion systems or in other words three demonstrators of a given wind propulsion technology in that segment, and the bulker sector was the earliest to reach that for a number of system types. However, we have also seen this level reached in the RoRo, tanker and general cargo segments and announced contracts and retrofit interest in those sectors is growing accordingly.

I am often asked about the trajectory of the development of the wind propulsion market and while all predictions are wrong and history is written by the victors, we can still draw lessons from the past and project those into the future.

From the past, we can draw on the fact that wind propulsion was displaced by fossil fuels only once steam technology was up to scratch, the need to grow and maintain overseas empires was strong, and the delivery of ships and fuels were heavily subsidized either directly or indirectly. Steam and wind were roughly at parity in builds around the turn of the twentieth century and wind was still viable at scale on long trades well into the twentieth century.

If we flip this around and view wind as a new entrant to the market, we have modern, 21^st century materials, design, digital control, and operational optimization through satellites, sensors and wind routing software. The demands of the globalized trading system remain strong and the geo-political risks to trading routes, products, and fuel sources have been laid bare once again by the COVID-19 pandemic, logistics crisis, conflict, and navigation way blockages.

As for subsidies, those continue at pace in the fossil fuel world, but new fuels are, and will continue to be higher in price, and competition for those will be strong from non-maritime sources. Therefore, we could conclude a perfect storm is brewing in the maritime fuel/energy landscape and I feel that we are now moving ‘with’ the transition winds rather than being buffeted by headwinds.   

The full potential of wind as an energy source for ships is, however, still far from being realized. Some form of wind propulsion system is applicable to nearly all vessels, either as a retrofit or as optimized newbuilds. If wind propulsion was to be fully rolled out across the existing fleet and integrated into the newbuild program, then we would be able to deliver at least 20% of the total energy requirement of the global fleet. This would be further enhanced by operating those ships to maximize the amount of wind energy delivered to the vessel – while all the time paying for itself – so there is still a huge amount of untapped potential.  

Price

I have often talked about the 5-P’s when it comes to the main barriers to the uptake of wind propulsion: Price, Policy, Providers, People and Perception.

For price, there are push and pull factors at play here. The price of fossil fuels and their alternative lower carbon options will only likely increase over the mid-long term unless hugely subsidized. This increased cost seriously strengthens the business case for an energy source that is delivered to the point of use at no charge for the lifetime of the ship (and beyond if you swap systems on out of service vessels to newer ships). On top of that, we have entered a learning curve process for wind propulsion systems, wherein as we double the deployment of rigs, the cost of production reduces by a levelized amount at around 10% (in IWSA calculations), a similar level for other large maritime equipment.

Policy – Global and regional

From a policy perspective, we still have some way to go to have wind propulsion fully integrated into all regulations. There is an increasing acknowledgment that wind propulsion needs to be integrated further. The key policy decision of 2023 was of course the new IMO GHG strategy. However, more important than the strategy itself is the increasing realisation among policy makers and the wider industry that reaching the 20% reduction in emissions and more importantly the 30% target, can only be achieved through a combination of energy efficiency, voyage optimisation and wind propulsion doing the heavy lifting while perhaps 5% can be delivered by new low carbon fuels coming online.

No single policy measure will achieve the 2030, 2040 or 2050 IMO targets. However, the combination of EEXI, CII, EU ETS, Fuel EU Maritime, and a later IMO carbon levy, linked with industry initiatives and national regulation are pulling enough levers that the message of ‘we must reduce emissions, early action is required, and the cost of transition is only going to get more expensive’ is coming across loud and clear.

Having said that, the EU has taken the lead with both their economic measure (inclusion of shipping into the EU ETS) from this year and the technical measure (Fuel EU Maritime) from 2025. While it is always going to be preferable to have a global measure, there is a track record of EU policy helping to spur action at the international level.

From a wind propulsion perspective, these measures certainly add impetus and give shipping companies that install systems a benefit, however, the ramped implementation of EU ETS slows the incentive (40% initially growing to 100% in 2026) and the exclusion of some GHG emissions until 2026 is also less than ideal. Extending both of the regulations to include ships under 5,000GT would be a major boost for innovators as many smaller vessels can install systems quickly at scale and thus innovation and rapid reduction in production costs could be stimulated by that, along with increasing work at EU shipyards that mainly cater to these smaller ship sizes.

As these two regulations are scrutinized and reviewed, we expect wind propulsion to become more integrated, especially within the Fuel EU Maritime regulation, which as the name indicates was designed with ‘fuel’ in mind rather than a total ‘energy’ perspective. There is an additional bonus applied for wind, however, that is capped at 15% of the energy provided to the ship, with a limit of a maximum 5% bonus applied for that energy whereas alternative low-carbon fuels are treated more favourably. This is a significant step forward, but we expect that on review for that to be more aligned with actual performance and the full potential of wind propulsion systems in the future.

Providers

In terms of wind propulsion technology providers, we have seen remarkable resilience in the sector with a growing number of companies and products coming into the market. There are currently thirteen providers with technologies demonstrated at commercial level. These technologies are robust, technical and operational challenges have been tackled and where concerns remain there is a concerted effort across the industry, among class etc. to address those issues. However, there is little to hinder uptake in this area, other than a need for increased transparency and standardization of third-party validated data being available to the industry, a situation that is improving but will need to improve at pace to match the growing market appetite.

People

The People aspect in the 5 p’s includes a spectrum of stakeholders from decision makers through to the end users of the technologies (i.e. seafarers). Here, the spread of information and experience in handling wind propulsion systems is patchy geographically but improving in important areas. Decision makers in many shipping companies in Europe and in Asia are increasingly aware of wind propulsion opportunities and have been investigating these over the past few years.

There is an increased understanding of wind propulsion among shipyards and a move to add systems to standard equipment lists and there is also a small but growing body of seafarers with experience of serving on ships with wind propulsion systems and as training and assimilation programs start to come online over the next year or so, then this level of knowledge will disseminate further.

Knowledge of wind propulsion in the financial and insurance worlds is currently less than ideal, and thus decision-making in this area is slower or misguided and this is increasingly an important sector where the IWSA will be focusing more attention going forward.

Perception

The final aspect is Perception, this is of course linked to people but in a more general sense. The industry is rightly a conservative one when it comes to new fuels and alternative technologies. Safety first is an unquestionable approach and trust has to be built over multiple installations, transparency and a collaborative approach. The wind propulsion segment has been on this voyage over the past decade.

Albeit wider perception issues still persist with some thinking that rather than this being a 21^st century technology solution utilising modern materials, state-of-the-art design procedures, automated operations, satellite and machine learning approaches to optimization and so on, wind energy use is a romantic 17^th century pirate galleon approach. This change in perception takes time.

As an industry, we still tend to take a ‘fuel-centric’ approach to all things shipping, rather than an ‘energy-centric’ one, however, once you plug in an abundant, globally available ‘free’ energy source that is available to everyone today, then our pathway to delivering profitable, cleaner and more resilient shipping services in the coming decades takes an interesting alternative tack.

All of these aforementioned barriers are diminishing. However, there are still many shipowners that haven’t yet embraced wind propulsion as a significant part of the energy mix future let alone install systems themselves.

Why? While many of the positive economic indicators are lining up, decarbonization policy levers are starting to be pulled and the technical, safety and operational concerns are being addressed, there still aren’t enough demonstrator ships in operation that provide the security/comfort for many companies that are searching for solutions but have limited resources to deploy.

New fuels are very far away from being affordable for many shipping companies that are very conscious of their bottom line and the upfront cost for wind propulsion systems is a significant obstacle for some, even though they will pay for themselves (unlike the new fuel systems). As such, the recent development of the option to lease or have a pay-as-you-save system in place to finance the installations is potentially a game changer as these later-followers come round to wind propulsion options.

For newbuild wind-powered ships, there is also a significant increased cost of having both a primary wind propulsion system along with auxiliary engines. However, this development offers cargo owners a clear zero-emissions or near zero-emissions option that is available now, thus if cargo owners are able to offer guaranteed long-term contracts for cargo for these ships, that de-risks the finance required for those builds. 

So, wetting a finger and holding that up in the air to gauge the direction of the wind, we ask where is the market heading and are there any channel markers that we should be looking for? Well, once again, as I pull out my trusty, dusty and problematic crystal ball, there are a few trends and points that can help us to navigate the future.

Firstly, numerical targets, these are always arbitrary however, the pipeline of announced installations and newbuild contracts indicate that there will continue to be a doubling of installations roughly each year towards 2030, without any further regulatory or fuel price drivers coming online. Therefore, following that trend, we would likely reach approximately 3,000+ ships by the end of 2030, which is the lower end of the EU forecast made back in 2017.

Yet, bearing in mind the COVID-19 pandemic interruption, we will reach the higher end of that projection of 10,700 installation two years later, so that forecast would normally have been on track for 2030. It goes without saying that we can accelerate that level of installation very quickly, with IWSA members collectively already having production capacity in the high hundreds per year and the ability to multiply that capacity quickly.

As mentioned earlier, as each segment of shipping reaches increased levels of reference or demonstrators then that further stimulates that segment – thus as we see the tanker segment for example reach three or more installations of a given technology at a particular tanker type or size then interest and orders will grow quickly as we are seeing increasingly in the bulker segment. This is further encouraged when shipowners are able to get those systems on standard yard equipment lists and there is a ready supply at a competitive price.

This decision-making is further stimulated by external factors such as fuel price rises, and regulation enacted. So, where are we on that ‘S-curve’, are we approaching the inflection point? To answer that, we need to pull in the strands mentioned above.

Singular orders for installations are still coming in, however, we are also starting to see small fleet orders being made for delivery starting in 2024 and accelerating through 2025/26. The lag in time between retrofit order announcements and the actual installation is decreasing from 12+ months that we saw in 2021/22 down to less than 6 months in some cases today.

We are seeing signs of a healthy learning curve kicking in, and that will likely halve manufacturing costs (if energy and material costs remain level) from a 2020 baseline by 2025/6 for those solutions already in the market. Finally, with the EU ETS costs and other compliance issues around EEXI/CII and Fuel EU Maritime starting to bite in 2025/26 along with expensive new fuels coming into the market this leads me to suggest that by the end of 2025, we will be at that inflection point, with well over 100 wind installed ships in operation including a handful of primary wind vessels demonstrating the technology across almost all shipping sectors and increasingly covering most geographical regions.

All that’s left for me to say is that the time has arrived for the shipping industry to raise its sails to deliver on the raised ambition for 2030 and beyond. The winds are fair, and we have the know-how and technology to harness those winds to deliver a decarbonized, profitable, and resilient fleet of the future.